July 26, 1993
CLA-2 CO:R:C:S 557327 WAWCATEGORY:CLASSIFICATIONTARIFF NO.:9802.00.80; 9802.00.50
William D. Outman, II, Esq.
Baker & McKenzie
815 Connecticut Avenue, N.W.
Washington, D.C. 20006-4078RE: Applicability of the partial duty exemption available under subheadings 9802.00.80 and 9802.00.50, HTSUS, to Levi jeans and jackets; sewing; repair; alteration; press; label; replacement of buttons, rivets
Dear Mr. Outman:
This is in reference to your letter dated May 6, 1993, on behalf of International Garment Finishers Inc. ("IGF"), on the applicability of the partial duty exemption available under subheadings 9802.00.80 and 9802.00.50, Harmonized Tariff Schedule of the United States (HTSUS), for Levi jeans and jackets from Mexico, when returned to the U.S.FACTS:
You state that IGF, a domestic corporation, is engaged in the business of processing garments. IGF proposes to enter into a contract with Levi Strauss & Co. ("Levi"). Under this proposed contract, IGF will provide stone-washing or rinsing services on jeans and jean jackets in the U.S. In addition, IGF will provide final inspection, repair, pressing, labeling and packaging services in Mexico.
The proposed steps involved in the production of the jeans and jean jackets are as follows:
(1) U.S.-manufactured denim (i.e., fiber forward) will be cut to pattern pieces in Levi's El Paso, Texas facility;
(2) The cut pieces will be assembled into completed articles, namely jeans and jean jackets, by Levi's Mexican maquiladora facility or a contract sewing operator in Mexico contracted by Levi;
(3) The completed jeans and jackets will then be returned to the U.S. and delivered to IGF for further processing.
(4) IGF will subject the garments to either: (a) a stone-washing operation, or (2) a rinsing operation. Both operations involve chemically treating the garments to make them softer in texture and "hand feel." The stone-washing also fades the color of the garments;
(5) The garments are dried and returned to Mexico;
(6) In Mexico, all of the garments will be pressed and labeled with four types of labels: (a) universal vendor marking labels, (2) flasher tags (paper tags secured in the pocket), (3) hand tags and (4) size stickers;
(7) All garments will be visually inspected for damage or defects which may have occurred as a result of the U.S. stone-washing or rinsing operations or which were present from the original assembly;
(8) The types of repair operations performed on the garments in Mexico include the following: (a) restitching a broken or skipped stitch; (b) replacing or restitching belt loops that have become unraveled; (c) tucking under and restitching seams that have become frayed; and (d) replacing rivets or buttons that may have fallen off or become loose;
(9) Finally, all garments will be packaged for reimportation into the U.S.ISSUE:
(1) Whether the jeans and jean jackets will be entitled to the partial duty exemption available under subheading 9802.00.80, HTSUS, when returned to the U.S. after being assembled in Mexico.
(2) Whether the operations performed in Mexico when the articles are returned to that country constitute acceptable "repairs or alterations," so that they are entitled to the partial duty exemption available under subheading 9802.00.50, HTSUS, when imported into the U.S.LAW AND ANALYSIS:
I. Applicability of subheading 9802.00.80. HTSUS
HTSUS subheading 9802.00.80 provides a partial duty exemption for:
[a]rticles assembled abroad in whole or in part of fabricated components, the product of the United States, which (a) were exported in condition ready for assembly without further fabrication, (b) have not lost their physical identity in such articles by change in form, shape or otherwise, and (c) have not been advanced in value or improved in condition abroad except by being assembled and except by operations incidental to the assembly process such as cleaning, lubrication, and painting...
All three requirements of HTSUS subheading 9802.00.80 must be satisfied before a component may receive a duty allowance. An article entered under this tariff provision is subject to duty upon the full value of the imported assembled article, less the cost or value of such U.S. components, upon compliance with the documentary requirements of section 10.24, Custom Regulations (19 CFR 10.24).
Section 10.14(a), Customs Regulations (19 CFR 10.14(a)), states in part that:
[t]he components must be in condition ready for assembly without further fabrication at the time of their exportation from the United States to qualify for the exemption. Components will not lose their entitlement to the exemption by being subjected to operations incidental to the assembly either before, during, or after their assembly with other components.
Section 10.16(a), Customs Regulations (19 CFR 10.16(a)), provides that the assembly operation performed abroad may consist of any method used to join or fit together solid components, such as welding, soldering, riveting, force fitting, gluing, laminating, sewing, or the use of fasteners.
Operations incidental to the assembly process are not considered further fabrication operations, as they are of a minor nature and cannot always be provided for in advance of the assembly operations. However, any significant process, operations or treatment whose primary purpose is the fabrication, completion, physical or chemical improvement of a component precludes the application of the exemption under HTSUS subheading 9802.00.80 to that component. See 19 CFR 10.16(c).
At issue in this case is whether the operations performed in Mexico such as sewing and packaging operations Constitute acceptable assembly operations or operations incidental to the assembly process under subheading 9802.00.80, HTSUS. The foreign operations that entail sewing fabric onto itself using any type of stitch, including a "close-out"/finishing or over-edge stitch are considered acceptable assembly operations. See 19 CFR 10.16(a); L'Eggs Products v. United States, Slip Op. 89-5, 13 CIT 40, 704 F. Supp. 1127 (CIT 1989), which held that sewing together the end of a pantyhose tube is considered an acceptable assembly operation as the thread serves as a joining agent by joining the tube to itself. Additionally, sewing two or more pieces of fabric together, and sewing in care and marking labels are also considered acceptable assembly operations pursuant to 19 CFR 10.16(a). Therefore, sewing the cut pattern pieces together in Mexico to produce the jeans and jean jackets is an acceptable assembly operation within the meaning of subheading 9802.00.80, HTSUS.
II. Applicability of subheading 9802.00.50. HTSUS
Articles returned to the U.S. after having been exported to be advanced in value or improved in condition by repairs or alterations may qualify for the partial duty exemption under subheading 9802.00.50, HTSUS, provided the foreign operation does not destroy the identity of the exported articles or create new or different articles through a process of manufacture. However, entitlement to this tariff treatment is precluded where the exported articles are incomplete for their intended use prior to the foreign processing, Guardian Industries Corp. v. United States, 3 CIT 9 (1982), or where the foreign operation constitutes an intermediate processing operation, which is performed as a matter of course in the preparation or the manufacture of finished articles. Dolliff & Company. Inc. v. United States, C.D. 4755, 81 Cust. Ct. 1, 455 F. Supp. 618 (1978), aff'd, C.A.D. 1225, 66 CCPA 77, 599 F.2d 1015 (1979). Articles entitled to this partial duty exemption are dutiable only upon the cost or value of the foreign repairs or alterations when returned to the U.S., provided the documentary requirements of 19 CFR 10.8 are satisfied.
Repairs are operations aimed at restoring articles to their original condition, but cannot be so extensive as to destroy the identity of the exported article or create a new or different article. Press Wireless. Inc. v. United States, 6 Cust. Ct. 102, C.D. 438 (1941).
The replacement and/or addition of parts to restore products to their original condition may constitute repair operations for purposes of subheading 9802.00.50, HTSUS, if the particular additions are not so extensive as to create a new or different article. We have held in HRL 063221 dated July 31, 1979, that defective wiring harnesses sent to Mexico for testing, replacing faulty components, and labeling, before being returned to the U.S., constituted an acceptable repair or alteration within the meaning of item 806.20. In HRL 063221, the testing procedure was described in terms of visual inspection plus checking for electrical continuity and impedance with test machines. Defective portions of the cable and one or more connectors were replaced by means of crimping and soldering operations. The labeling consisted of proper identification of the components by affixing the proper tags, decals, part numbers, or plastic labels, to identify the components. However, in 063221, we also found that replacing the entire length of cable produced such a substantial change as to create a new and different article of commerce, so that the application of this tariff provision was precluded in this circumstance. See also HRL 556992 dated May 7, 1993 (holding that the replacement of a monochrome display on a computer with an active-matrix color display is an alteration within the meaning of subheading 9802.00.50, HTSUS). In the instant case, we find that the replacement of rivets or buttons that may have fallen off or become loose during the stone-washing or rinsing operations which take place in the U.S., do not preclude the application of subheading 9802.00.50, HTSUS. These are operations which constitute genuine repairs and are not so extensive as to result in a new and different article of commerce which is commercially different from the article that was exported, nor are these operations a necessary step in the manufacture of the finished jeans and jean jackets.
With regard to the labeling operation you intend to conduct in Mexico, we have held that marking or affixing a label to a product constitutes an alteration. See T.D. 56320(1) dated September 17, 1964 (electrical diodes exported to Mexico for inspection, evaluation, and stamping of their electrical diode characteristics were entitled to treatment under 806.00, TSUS (now 9802.00.50, HTSUS); HRL 071159 dated March 2, 1983 (diodes exported to Mexico for marking and packaging operations were entitled to treatment under 806.20, TSUS, as the printing operation had no more significance than a label for identification purposes); HRL 554996 dated June 30, 1988 (sunglasses exported for inspection, temple adjustment and retagging were entitled to the partial duty exemption in item 806.20, TSUS). Consistent with the above rulings, we are of the opinion that the labeling of the jeans and jean jackets by means of universal vendor marking labels, flasher tags, hang tags, and size stickers are operations that constitute acceptable "alterations" within the meaning of subheading 9802.00.50, HTSUS.
In addition, we have held that cutting off a dangling thread and folding over the top serrated edge of a paper bag constitute acceptable alterations within the meaning of subheading 9802.00.50, HTSUS, in HRL 555633 dated February 25, 1991 and 556865 dated October 30, 1992, respectively. In HRL 555633, embroidered miniature rosebuds were sent from the U.S. to Mexico, where they were inspected and in some instances a hanging thread was removed prior to packaging. We held that cutting the thread resulted in an advancement in value and improvement in condition, so that the article was not precluded from the partial duty exemption under this subheading. In HRL 556865, paper shopping bags were sent from the U.S. to Mexico where the top serrated edge of the bag was folded over about 3/4 of an inch into the interior of the bag. We held that the shopping bag in this case had not lost its identity as a result of the foreign processing, nor had a new and different article emerged as a result of the processing. Likewise, tucking under and restitching seams that have become frayed, restitching a broken or skipped stitch and replacing or restitching belt loops constitute acceptable alterations within the meaning of subheading 9802.00.50, HTSUS.
The information submitted by counsel establishes that the jeans and jean jackets in this case are suitable for their intended use in their condition as exported, and, in fact, are so used. Therefore, we are persuaded that the foreign processing operations, i.e.. restitching a broken or skipped stitch, replacing or restitching a belt loop, tucking under and restitching seams that have become frayed, and replacing rivets or buttons that may have fallen off or become loose, do not constitute intermediate processing operations performed as a matter of course in the preparation or the manufacture of a finished pair of jeans or jean jackets. These operations performed in Mexico in no way destroy the identity of the exported article or create a new or different article of commerce or significantly change the quality, texture or character of the jeans or jean jackets. The jeans and jean jackets retain the identical function as the article which is exported into Mexico. Thus, we find that the operations performed in Mexico constitute proper repairs or alterations within the meaning of subheading 9802.00.50, HTSUS.HOLDING:
Based on the information provided, we are of the opinion that sewing the cut pattern pieces together in Mexico to produce the jeans and jean jackets is an acceptable assembly operation within the meaning of subheading 9802.00.80, HTSUS. Therefore, the imported jeans and jean jackets may be entered under subheading 9802.00.80, HTSUS, with allowances in duty for the cost or value of the U.S.-origin components incorporated therein, upon compliance with the documentary requirements of section 10.24, Customs Regulations (19 CFR 10.24).
The operations performed in Mexico when the jeans and jean jackets are returned to that country, consisting of pressing, labeling, restitching broken or skipped stitches, replacing or restitching belt loops, tucking under and restitching seams, and replacing rivets and buttons, constitute repairs or alterations within the meaning of subheading 9802.00.50, HTSUS. Therefore, the jeans and jean jackets will be entitled to classification under this tariff provision with duty only on the value of the foreign processing, upon compliance with the documentary requirements of section 10.8, Customs Regulations (19 CFR 10.8).
Sincerely,
John Durant, Director
Commercial Rulings Division